There are some ethical considerations to be aware of when designing a budgetary system. In many cases, a system can address potential ethical issues, whereby a manager might be tempted to act in hi or her own best interest, rather than with respect to the organization, likely due to their being inappropriately motivated by the rewards system that is a part of the budgeting process. I would think this becomes more applicable as a function of the increasing size of an organization, but nonetheless important for relatively small companies with, say, 10 to 50 employees, which is common with a lot of the early-stage ventures we work with at Daily.
Further, one behavior that can be of particular concern in an organizational budgeting setting is the extent to which managers attempt to incorporate slack into their budget. In these cases the decision is often driven by self-interest, and as such can potentially be ethically inappropriate. It’s no secret that when managers are involved in budgeting, they can have a tendency to intentionally bias the process so as to make their unit’s budgeted performance results easier to attain, or to secure a more favorable resource distribution than can be justified given the unit’s contributions.
The above falls into challenges of fair budgetary procedures and implementation. When, however, handled appropriately, budgetary fairness can have a very positive effect on other aspects of managerial behavior, including increased job performance and collaboration with coworkers. As The Week Magazine might refer to the above, it’s boring, yes, but important.
Posted by: Colin Mangham